Auditor Report of Paos Industries Ltd.

Mar 31, 2010

We have audited the attached Balance Sheet of Raj Agra Mills Ltd as at 31st March 2010, the profit and loss account and also the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

1. We conducted our audit in accordance with the auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

2. As required by the Companies (Auditors Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order.

3. Further to our comments in the Annexure referred to above, we report that;

a) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit;

b) In our opinion, proper books of account as required by law have been kept by the company so far as appears from our examination of those books;

c) The Balance sheet, Profit and loss account and Cash Flow Statement dealt with by this report are in agreement with the books of account;

d) In our opinion, the Balance sheet, Profit and loss account and Cash Flow Statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956;

e) On the basis of written representations received from the directors, as on 31st March 2010 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March 2010 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956;

f) In our opinion and to the. best of our information and according-to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:

i) in the case of balance sheet, of the state of affairs of the company as at 31st March 2010; and

ii) in the case of the profit and loss account, of the loss for the year ended on that date; and

iii) in the case of the cash flow statement, of the cash flows for the year ended on that date.

ANNEXURE REFERRED TO IN PARAGRAPH 2 OF OUR REPORT OF EVEN DATE TO THE MEMBERS OF RAJ AGRO MILLS LTD., ON THE ACCOUNTS AS AT AND FOR THE YEAR ENDED MARCH 31, 2010.

(i) (a) The company is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.

(b) All the assets have not been physically verified by the management during the year but there is a regular programme of verification which, in our opinion, is reasonable having regard to the size of the company and the nature of its assets. No material discrepancies were noticed on such verification,

(c) Fixed Assets disposed off during the year, in our opinion, do not constitute substantial part of the fixed assets of the Company and such disposal has not affected the going concern status of the Company.

(ii) (a) The inventory has been physically verified during the year by the management In our opinion, the frequency of verification is reasonable.

(b) The procedures of physical verification of inventories followed by the management are reasonable and adequate in relation to the size of the company and the nature of its business

(c) The company is maintaining proper records of inventory. The discrepancies noticed on verification between the physical stocks and the books records were not material.

(iii) (a) The Company has taken unsecured loan from one person covered in the register maintained under section 301 of the Companies Act, 1956. The maximum amount involved during the year was Rs.139.00 Lacs and year end balance of the loan taken from such person is Rs.114.00 Lacs. The company has not granted any ioan to parties covered in the register maintained under section 301 of the Companies Act, 1956.

(b) In our opinion, the rate of interest and other terms and conditions of such loan are net., prima face, prejudicial to the interest of the company.

(c) The company is regular in repayment of principal as stipulated and has been regular in payment of interest.

(d) There is no overdue amount of loan taken from companies, firms & other persons listed in the register maintained under section 301 of the Companies Act, 1956.

(iv) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and with regard to the sale of goods. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

(v) (a) According to the information and explanation given to us, we are of the opinion that the transactions that need to be entered into the register maintained under section 301 of the Companies Act, 1956 have been so entered.

(b) In our opinion and according to the information and explanation given to us, the transactions made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value of rupees five lacs in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time.

(vi) In our opinion and according to the information and explanations given to us, the company has complied with the provisions of Sections 58A and 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits) Rules 1975 with regard to the deposits accepted from the public. No order has been passed by the Company Law Board.

(vii) In our opinion the company has an internal audit system commensurate with the size and nature of its business.

(viii) We have broadly reviewed the books of account relating to materials, labour and other items of cost maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cos! records under section 209(1)(d) of the Companies Act, 1956 and we are of the opinion that prima facie the prescribed accounts and records have been made and maintained. However we are not required to and have not carried out detailed examination of such accounts and records with a view of determining whether they are accurate or complete.

(ix) (a) According to the information and explanations given to us and the books and records examined by us, the company has been regular in depositing with appropriate authorities undisputed statutory dues including Provident fund, Investor Education and Protection Fund, Employees state insurance, Income tax, Vat/CST, Wealth tax, Service Tax, Custom Duty, Excise duty, Cess and other material statutory dues applicable to it.

(b) According to the information and explanations given to us, no undisputed amounts payable in respect of Provident fund, Investor Education and Protection Fund, Employees state insurance, Income tax, VAT/CST, Wealth tax, Custom Duty, Excise duty, Cess were in arrears, as at 31.03.2010 for a period of more than six months from the date they became payable.

(c) As at 31st March 2010 according to the records of the company and the information and explanation given to us, the following are the particulars of dues on account of sales tax penalty matters that have not been deposited on account of any dispute:

Name of the Nature of Amount (in Period to which Forum where dispute pending statute the dues Rs.) the amount relates

The Punjab Penalty u/s 35,500/- Fin Year 2006- Appeal before Deputy Excise & Taxation VAT ACT, 51(7)(b) 2007 Commissioner Cum Joint Director 2005 (Enforcement), Bathinda.

The Punjab Penalty u/s 2,62,000/- Fin Year 2005- Appeal before Deputy Excise & Taxation VAT ACT, 51(7)(b) 2006 Commissioner, Patiala. 2005

However according to information and explanation given to us, a sum of Rs.8,875/- was deposited on 22.07.2006 and Rs.65,500/- deposited on 10.06.2006 against the above demand.

(x) Thft,accumulated losses of the company are more than 50% of its net worth. The company has incurred cash (dlsses during the financial year covered by our audit and there were also cash losses in the immediately preceding financial year.

(xi) In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of dues to Banks, financial institutions. There is no debenture issued by the company.

(xii) In our opinion and according to the information and explanations given to us the company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) In our opinion, the company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the company.

(xiv) In our opinion and according to the information and explanations given to us, the company is not a dealer or trader in securities. The Company has not made any investment during the year under review. However with regard to the investment already made in mutual funds, the proper records have been maintained and the said investments have been held by the company in its own name.

(xv) According to the information and explanations given to us, the company has not given any guarantee in respect of loans taken by others from banks or financial institutions.

(xvi) Based on the information and explanations given to us by the management, term loans were applied for purpose for which the loans were obtained.

(xvii) According to the information and explanations given to us and on an overall examination of the balance sheet of the company, we report that the no funds raised on short-term basis have been used for long-term investment. No long-term funds have been used to finance short-term assets except permanent working capital.

(xviii) The company has hot made any preferential allotment of shares to the parties and companies covered in the register maintained under section 301 of the Companies Act, 1956 during the year under review.

(xix) The company has not issued debentures during the period covered by our audit report.

(xx) The company has not raised any money through a public issue during the period covered by our audit report.

(xxi) Based upon the audit procedures performed and information and explanations given by the management, we report that no fraud on or by the company has been noticed or reported during the course of our audit.

FOR P.C. GOYAL & CO.

CHARTERED ACCOUNTANTS

SD/-

(CA P.C. GOYAL)

PLACE : LUDHIANA PROP.

DATE : 24.05.2010 M.NO. 80377